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Dave Beck, SVP and Regional ExecutiveDecember 8, 2014
Emerging Payment Alternatives for the Unbanked and Underbanked
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Agenda Payments Landscape and the Fed’s Role
Who are the unbanked and underbanked and why?
Prepaid cards as an alternative for low and moderate income consumers
Emerging Mobile Payments
Questions and Answers
Payments Landscape and the Fed’s Role
Who are the unbanked and underbanked and why?
Prepaid cards as an alternative for low and moderate income consumers
Emerging Mobile Payments
Questions and Answers
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Disclaimer
The views expressed in this presentation are my own and do not represent the official views of the Richmond Fed or Federal Reserve System.
Also, references to products, processes or services are for informational purposes only, do not constitute endorsement, recommendation or favoring by the Richmond Fed or the Federal Reserve System.
Disclaimer
The views expressed in this presentation are my own and do not represent the official views of the Richmond Fed or Federal Reserve System.
Also, references to products, processes or services are for informational purposes only, do not constitute endorsement, recommendation or favoring by the Richmond Fed or the Federal Reserve System.
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We’re executing on the financial services mission to foster the integrity, efficiency and accessibility of the U.S. payment system.
Why is the FED at the table?
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Source: 2000 and 2012 Federal Reserve Payments Studies
Card Payments are 66% of Non Cash Payments Prepaid is
fastest growing channel
Prepaid is fastest growing
channel
Source: FRB Philadelphia 6
Distribution of General Purpose Reloadable (GPR) Cards and Transaction Share by Income Group
2013 Consumers and Mobile Financial Services Report 7
Why are Consumers Unbanked?
Source: Javelin Strategy & Research, October 2013 8
Who are the Underbanked?
According to Javelin Strategy & Research:• Are younger• Are more likely to be Latino or Black than is common in the total population
• Have higher rates of unemployment• Are more likely to live in cities (42% vs. 34% of all consumers)
• Have lower incomes• Have a greater number of early adopters
Unbanked and Underbanked Use of Prepaid Cards
According to the FDIC:• In the last 12 months:
– 22.3 % of unbanked households used a prepaid card– 13.1 % of under banked – 5.3 % of fully banked households
• In 2013, more than a quarter (27.1 %) of unbanked households reported prepaid card use, up from 17.8% in 2011 and 12.2% in 2009.
2013 FDIC Unbanked and Underbanked Household Survey Results 9
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CFPB Proposes New Rules for Prepaid Debit Cards to Facilitate Comparison Shopping
• Two “Know Before You Owe” disclosures:1. Brief features statement using
standardized, plain‐language format.
2. In depth statement including potential fees.
• Regulation:• Improves consumers’ free access to account balance information • Requires issuers to post their account agreements online• Creates error‐resolution procedures• Provides protections when cards are lost or used fraudulently• Strictly controls credit products linked to prepaid card accounts
2014 Consumer Reports: Prepaid Cards Used as a Bank Account Substitute
Evaluating on Value, Fee Accessibility & Clarity, Convenience and Safety
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• Provided to Social Security and Supplemental Security income check recipients who have not signed up for direct deposit.
Government Use of Prepaid Cards
www.usda.gov 13
• Functions like prepaid debit cards• Govt. mandate for EBT will continue to influence growth; WIC will use EBT in 2020
EBT Cards Issued by USDA to Over 23 Million Low Income Households (2013)
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• Functions as a library card
• Can be activated as a prepaid debit card
• Transparent fee structure tied to library’s financial literacy programming
• Provides fee revenues to the library
Frederick County Library Pilots New Library/Debit Cards
“I Love My Library” Prepaid Visa Debit Card
Source: “Mobile Wallets & Strategy: How the Game Changes with Apple Pay” ~Javelin Study & Research
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Underbanked Use of Mobile
Likelihood of Using Mobile Contactless Payments (Next 12 Mos.) by Consumer Type
According to FDIC, • Underbanked are more likely to use mobile banking than the fully banked population
• Almost 2/3 of underbanked households with mobile phones are likely to have smartphones.
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PayNearMe (PNM): How it Works
Get a paycodefrom the Merchant
payee (available online)
Present paycode & make cash payment at POS; receive
receipt
PNM transfers funds to payee
via ACH
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“Remember that time you won the lottery? I don’t either.” ~ GoBank’s Fortune Teller
Alternative Payment Choices Include Budgeting Tools and Spending Advice
Questions?